Buying Texas Tax Deed Properties in Hope for Redemption

Arnie: Hello. I’m Arnie Abramson. I’m the CEO of Texas Tax Sales Resource Group and today we’ll be talking about the redemptions in tax sales.

Mike: This REI Classroom real estate lesson is sponsored by AceBusinessFunding.com.

Arnie: Now that I can put on my FlipNerd glasses, we can get going. I’d better not. In some of the states that are tax deed states, the person who loses the house has the right to redeem it or buy it back. It differs in every state. Today I want to tell you about Texas and their laws because they’re entirely different from all the other states. In Texas, [Inaudible 00:01:12] tax sale [Inaudible 00:01:16] and anyone who has an interest in that property, like the mortgage company, for example, has the right to redeem it. That means they can buy it back from you. Now, the time period can be six months or two years, depending on if it is a homestead, a [manual] lease or has agricultural exemption, it’s two years. If it’s not that, it’s 180 days.

Now does the investor who bought the house lose everything if they redeem it? No, of course not. The person who redeems the house must buy it back from the investor and give him everything he paid for it and any costs associated with it, plus a penalty premium of 25% if it’s in the first 12 months. If it’s in the second year, it’s 50% more. Now, this is not just what he paid for it, but also any cost involved that were to maintain, preserve or safe keep the property. Anything you can justify to do that.

For example, insurance costs, that’s certainly to maintain, preserve and safe keep the property. So the investor would get everything he had paid for insurance back also. And that also includes some repairs that were necessary, necessary to preserve, maintain or safe keep the property. Not upgrades. Now, what makes it very different in Texas from other states is the penalty is not prorated. What that means is if you buy the property today at the tax sale and they redeem it tomorrow you get the full year’s 25%. And if they redeem it one year and one day after the sale, it’s 50%. Now, the redemption sounds very exciting and it sounds really great and wow, but that’s not necessarily the best reason to buy the properties and here’s why.

In tax deed states, only about 10% of the properties get redeemed. Now, in our companies [Inaudible 00:03:32] redeems and that brings your average down. However, 20% is not a great reason to go out and buy the property. Our philosophy is you buy this property for cash flow and if it happens to get redeemed, great, it’s a homerun. But, meanwhile, if you’ve got good solid cash flow, then you can wait the six months or two years and then perhaps sell it or keep it.

So that’s all for today and maybe we’ll have some related topics. If you have any questions, make sure that you know my email address. It’s [email protected] and that’s our website also, www.txtaxsales.com. Thank you for being with us.

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